[Solved] A company has Rs. 50 lakh to invest in either Project X or Project Y.... If the company chooses Project X, what is the opportunity cost and why is it important in decision-making? | Economic Awareness

Economic Awareness - Sectors of Indian Economy

A company has Rs. 50 lakh to invest in either Project X or Project Y. Project X requires Rs. 50 lakh and yields Rs. 70 lakh, while Project Y requires Rs. 50 lakh and yields Rs. 75 lakh. If the company chooses Project X, what is the opportunity cost and why is it important in decision-making?

ARs. 50 lakh; it is the investment amount

BRs. 70 lakh; it is the total profit from Project X

CRs. 75 lakh; it is the total profit from Project Y

DRs. 5 lakh; it represents the profit forgone by not choosing Project Y

Step-by-Step Solution

Step 1: Identify profits from both projects
Project X profit = Rs. 70 lakh; Project Y profit = Rs. 75 lakh.
Step 2: Calculate opportunity cost
Opportunity cost = profit forgone by not choosing Project Y = Rs. 75 lakh - Rs. 70 lakh = Rs. 5 lakh.
Step 3: Importance in decision-making
Opportunity cost helps in evaluating the cost of foregone alternatives to make efficient investment decisions.
Final Answer:
Rs. 5 lakh; it represents the profit forgone by not choosing Project Y → Option D
Quick Check:
Opportunity cost = profit forgone; guides efficient decision-making ✅

Quick Trick: Subtract chosen project profit from next best alternative profit to find opportunity cost.

Common Mistakes:

MISTAKES

Confusing total profit or investment amount with opportunity cost.

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More Economic Awareness Quizzes

If the company chooses Project X, what is the opportunity cost and why is it important in decision-making?

Step 1: Identify profits from both projects

Step 2: Calculate opportunity cost

Step 3: Importance in decision-making

Final Answer:

Quick Check:

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